Washington, D.C. — A new report from the Center for American Progress calls for the federal government to require investment fiduciaries to adopt and publicly disclose policies for how they identify and assess environmental, social, and governance (ESG)-related risks, such as the impact of climate change, on the investments they make for their clients.
A significant and growing amount of research suggests that ESG-conscious investing performs at least as well as, if not better than, investment approaches that do not factor in these issues. This is in part because ESG-conscious investing can help firms spot risk signals earlier than investing focused solely on short-term financial returns.
As a starting point, CAP recommends that the federal government modernize the Employee Retirement Income Security Act (ERISA) and the Investment Advisers Act to mandate that each ERISA plan fiduciary and SEC-registered investment adviser prepare and publicly disclose a sustainable investment policy that identifies specific ESG-related factors that the fiduciary considers as part of its investment, voting, and engagement duties. At a minimum, the factors mandated for consideration should include climate and environmental risks; worker rights, compensation, health and safety, and diversity and inclusion; political spending and lobbying practices; corporate tax risks; competition strategy risks; and supply chain risks, including human rights, among others that are commonly required by national and internationally recognized independent sustainable investing standard-setters.
“Investors should know how the fiduciaries they are entrusting with their savings are thinking about climate change, worker rights, and other critical issues that impact their returns and society writ large,” said Tyler Gellasch, a fellow at the Global Financial Markets Center at Duke University School of Law and a co-author of the report. “In the United States, it’s impossible for investors to understand how different fiduciaries are fulfilling their responsibility to consider relevant risks and opportunities without objective, comparable ESG-related obligations and disclosures.”
“Sustainable investing and integrating ESG factors into investment analysis can yield many benefits for all stakeholders in American corporations, including the public,” said Alexandra Thornton, senior director of Tax Policy at CAP and co-author of the report. “Investment fiduciaries, who manage the retirement savings and college funds of millions of Americans, should be clear with their clients and beneficiaries how they are handling these important risk factors when providing investment advice.”
Read the full report: “Modernizing the Social Contract With Investment Fiduciaries” by Tyler Gellasch and Alexandra Thornton
For more information on this topic or to speak with an expert, please contact Julia Cusick at [email protected].